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SHORT NOTES ON PROGRESSIVE HEALTH

ECONOMICS (PHE)

Kai-Lit Phua, PhD FLMI

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Short Notes on

Progressive Health

Economics (PHE)

Kai-Lit Phua, PhD FLMI

Copyright held by the author, 2016.

This free e-book has been written and made available to members of the

public, with the stipulation that it is not to be modified in any way.

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PREFACE

This free e-book has been written as a public service by the author. The aim

is to enable readers to learn about “heath economics” written from a pro-

people and politically progressive angle.

There is a lot of jargon used in mainstream health economics. I hope that this

short book will help to demystify these terms for readers.

Kai-Lit Phua, PhD FLMI

Shah Alam, Malaysia

November 2016

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BIOGRAPHICAL DETAILS ON THE AUTHOR

Kai-Lit Phua is currently an Associate Professor who teaches public health

subjects (such as medical sociology, epidemiology, biostatistics) at the

School of Medicine and Health Sciences, Monash University Malaysia. He

holds a Bachelor degree in Public Health and Population Studies from the

University of Rochester and Master and PhD degrees (Medical Sociology)

from the Johns Hopkins University. He also holds professional qualifications

in health insurance (FLMI). Phua has worked as Research Statistician VI

with the Department of Health of the state of Maryland in the USA. He has

also worked as Assistant Manager in the Managed Care department of a

major insurance company in Singapore.

Phua is an adviser on health policy to a major political party in Malaysia. He

regularly serves as the principal lecturer in the internal “Introduction to

Health Economics and Health Care Financing” course of the Ministry of

Health of Malaysia.

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TABLE OF CONTENTS

Preface

Biographical details on the author

Table of Contents

Introduction

Appendix 1: Cost-Containment Measures

1. Accessibility

2. Adverse selection

3. Ageing population

4. Asymmetric information

5. Balance billing

6. Barriers to health care

7. Biopiracy

8. Branded drug

9. Capitation

10. Case-mix

11. Certificate of Need (CON)

12. Cherry-picking

13. Clinical practice guidelines

14. Co-insurance

15. Community rating

16. Competition

17. Compulsory licensing

18. Consumerism

19. Co-payment

20. Cost-control

21. Coverage

22. Cream-skimming

23. Deductible

24. Diagnosis-Related Group (DRG)

25. Differential pricing

26. Efficiency

27. Equity

28. Evidence-based medicine

29. Experience rating

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30. Externalities

31. Fee-for-service

32. Formulary

33. Generic drug

34. Global budget

35. Government failure

36. Health care provider-patient relationship

37. Iatrogenic sickness

38. Illness behaviour

39. Incentives

40. Interest groups

41. Malpractice

42. Managed care

43. Market failure

44. Medically-underserved groups

45. Medical savings account

46. Moral hazard

47. Neoliberalism

48. New Public Management (NPM)

49. Nosocomial infection

50. Opportunity costs

51. Parallel import

52. Patented drug

53. Pharmaceutical industry

54. Premium

55. Principal-agent relationship

56. Privatisation

57. Professional socialisation

58. Progressive tax

59. Prospective payment

60. Public choice theory

61. Public goods

62. Quality assurance

63. Rationality

64. Rationing

65. Regressive tax

66. Regulation

67. Regulatory capture

68. Rent-seeking behavior

69. Resource-Based Relative Value Scale (RBRVS)

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70. Risk

71. Risk-pooling

72. Risk selection

73. Salary

74. Social class gradient in health

75. Social control

76. Social insurance

77. Social marketing

78. Supplier-induced demand

79. Technology assessment

80. Third party payment

81. Underinsured

82. Uninsured

83. User fees

84. Utilisation

85. Work, unemployment and health

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INTRODUCTION

Q. What does the term “Progressive Health Economics” mean?

A. My definition of “Progressive Health Economics” would be health

economics that approaches issues dealing with the production, marketing,

distribution and consumption of health-related goods and services from a

“pro-people” perspective. Pro-people refers to placing the emphasis on

benefiting those groups that are disadvantaged or dominated and exploited

by more powerful groups in most societies. These disadvantaged or

dominated/exploited groups include:

Ethnic or religious minorities

Poor people

Women (especially those who are lowly-educated)

Elderly people (in societies where ageism is significant)

Rural people

Slum dwellers in urban areas

People suffering from stigmatised sickness such as severe mental illness or

HIV/AIDS

Illegal immigrants

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Accessibility: This refers to the ability to gain access to health resources

available within the community. Accessibility is hampered by factors such

as lack of money or lack of health insurance coverage; cultural barriers (e.g.,

reluctance of women in some societies to be seen by male doctors);

discrimination (e.g., rude behavior of some health care providers toward

social groups such as Roma (“Gypsies”), the poor or charity patients or

illegal immigrants); lack of awareness (i.e., not knowing that community

NGOs are on hand to provide health-related services).

Adverse selection: Actions by other parties which increase the risk of harm

(often financial) for a particular party. Examples include young and healthy

people opting out of a health insurance pool. This means that over time, the

pool would consist of more and more elderly and sickly people. This may

threaten the financial solvency of the health insurance pool.

Ageing population: This refers to an increase in the percentage of elderly

people in a population over time. This is primarily due to a decrease in the

fertility rate (women marry later, delay child-bearing, and have fewer

children) and secondarily, more people reaching old age.

Asymmetric information: Imbalance in knowledge or information between

two parties in a transaction, thus giving rise to opportunity for the better

informed party to take advantage of the other party. For example, an

unethical health care provider may provide more services than medically

necessary or a patient may be hospitalised longer than medically necessary,

in order for the provider to generate more revenue (in a fee-for-service

environment).

Balance billing: Billing a patient beyond the maximum chargeable amount

permitted in a health insurance plan. This is legal in some political

jurisdictions but not in others.

Barriers to health care: Barriers to care include physical barriers (such as the

distance one has to travel to access health care services), financial barriers

(lack of money to pay for health care), cultural barriers (e.g., reluctance of

women to be treated by male doctors in some cultures) and informational

barriers (such as lack of awareness that health-related services are supplied

by NGOs at low cost in a particular community on the part of lowly-

educated people). Progressive governments can help citizens to overcome

barriers by:

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Building more clinics and hospitals in rural areas

Introducing a Flying Doctor service to increase access of people in

remote areas to health care providers

Promoting “telemedicine”

Providing free or highly-subsidised health care services to its citizens

Protecting citizens against having to pay very high health care-related

bills through a National Health Insurance scheme

Increasing awareness of availability of health-related services within a

geographical region. The services can be provided by the government,

for-profit private sector companies, or by non-profit NGOs

Taking legal action to prevent discrimination in the provision of

services to ethnic minorities, poor people, women, the elderly,

immigrants, people suffering from HIV/AIDS and so on

Biopiracy: The patenting of naturally-occurring genetic material or other

kinds of biological material (often without the knowledge of the people or

community from which it was obtained) for private commercial gain. Thus,

in the past, there have been attempts by Western companies to patent

biochemical material derived from the blood of indigenous peoples in

developing countries. There have also been attempts to learn from

indigenous peoples about plants that have medicinal values and patent

products from these, without fairly compensating the people who made these

knowledge (ethnobotany knowledge) available.

Branded drug (patented drug/proprietary drug): A drug which is protected by

a patent. Also, a brand name drug produced by the original company even

after its patent has expired. Drug costs can be reduced if a branded drug is

replaced by a generic drug in the treatment of disease. However, the generic

drug needs to be “bioequivalent” in order to maintain treatment efficacy.

Capitation: A form of paying health care providers whereby they are paid a

fixed sum per patient under their care. The providers are paid this fixed sum

regardless of whether the patient sees them or not. Supporters of capitation

argue that this provides incentives for health care providers to keep their

patients healthy (e.g., through health education) so that they would come

less often for treatment. Critics argue that providers may undertreat patients

or pass on sicker or more complicated cases to other providers (in order to

reduce financial risk to themselves).

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Case-mix: The mix of cases handled by a particular hospital. The case-mix

of teaching or specialised hospitals may differ significantly from those of

smaller district hospitals, with the former handling more complex or rarer

cases.

Certificate of need (CON): A technique used to control the proliferation or

unnecessary duplication of expensive medical technology or capital-

intensive health care institutions such as new hospitals. In order to buy and

install new medical equipment or to build a new hospital, the party

attempting to do so has to satisfy a government regulatory body which has

the power to decide whether or not to grant the CON. If the CON is not

granted, the new medical equipment cannot be bought and the new hospital

cannot be built legally. CON is a method of tackling the challenge of rising

health care costs.

Cherry-picking: American term with the same meaning as “cream-

skimming”, i.e., activities of insurers or health care providers aimed at

discouraging the sick from being enrolled in their health plans or being part

of their patient loads. This is to reduce financial risk by reducing the chances

of economic losses that may be incurred by covering or treating these

patients.

Clinical practice guidelines: Guidelines prepared by expert committees to

help doctors to provide care to the “typical case” patient for a particular

disease. The use of clinical practice guidelines is assumed to improve the

quality of care provided by avoiding practice variations on the part of health

care providers. Some critics argue that the preparation of clinical practice

guidelines can be compromised if any of the “experts” on the committee

have financial ties to organisations such as drug companies.

Co-insurance: Co-insurance refers to a fixed percentage of the total health

care bill which the patient has to bear.

Community rating: Charging each person the same premium when they

enroll in the same health insurance programme regardless of age, sex or

history of previous sickness. In schemes that use community rating, this

means that in effect, the young subsidise the elderly, the healthy subsidise

the sick, and the wealthy subsidise the poor. This is because the elderly, the

sick and the poor tend to have more health problems and therefore also make

greater use of health care services.

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Competition: The term “competition” as used in mainstream economics

refers to attempts by different providers of the same (or similar) goods and

services to attract as many customers as possible in order to maximise sales

and therefore profits. The theory is that competition will increase efficiency

in the allocation and use of scarce resources. It would also hold down prices

and improve product quality. Competition is eroded or lacking under

situations of “monopolistic competition”, oligopoly (only a limited number

of sellers) and monopoly (only one seller). Competition is also lacking when

sellers collude and engage in price-fixing.

Compulsory licensing: During a public health emergency, even though the

patent for a particular drug is held by Company X, the government allows

other drug companies to produce copies of the drug for sale and distribution

within the country. This is compulsory in the sense that, Company X has no

choice but to involuntarily “license” the drug to the other companies.

Needless to say, multinational drug companies oppose compulsory licensing

strongly.

Consumerism: The consumer movement began in the USA through the

effort of lawyer-advocate Ralph Nader. Consumerism in health care has

given rise to phenomena such as increasing skepticism of doctors and drug

companies in for-profit environments on the part of patients (the so-called

“health care consumer”). Patients nowadays are more inclined to question

the clinical decisions made by doctors and to file lawsuits against doctors

perceived to have engaged in malpractice.

Co-payment: A co-payment is a fixed fee which the patient has to pay each

time he or she sees a doctor or other health care provider. The theoretical

justification used by those who advocate co-payment is that: People would

think twice before seeking health care because it is no longer “free” and so,

there would be fewer cases of unnecessary or inappropriate care-seeking

(such as going to the hospital for minor health problems). However, there is

evidence that introduction of co-payments and other forms of “user fees”

may significantly reduce access for patients who are poor. Delays in care-

seeking by the poor may also aggravate their health problems unnecessarily.

Cost control: Attempts made (usually by government authorities through

public policy) to prevent health care prices from rising too fast. Cost control

attempts can be made on the supply side or on the demand side (see

Appendix 1).

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Coverage: The extent to which a target population is covered by a particular

health services programme. Broadening coverage tends to increase costs,

even as it improves equity at the same time.

Cream-skimming: A term from the USA to describe activities carried out by

insurers or health care providers to discourage sickly people from being

enrolled in their health plans or being part of their patient loads. This is to

reduce the risk of financial losses that may be incurred by covering or

treating these patients under managed care plans. A term with similar

meaning is “cherry-picking”.

Deductible: A deductible is a fixed sum of the overall medical bill which a

patient has to pay even though he or she is covered by a health insurance

plan.

Diagnosis-related group (DRG): First introduced in the United States under

its Medicare programme, as a system to pay hospitals for services provided.

Patients are categorised into clinically coherent groups with respect to

resource use and a fixed amount is reimbursable for each specific DRG

category. The aim is to get patients treated more efficiently in hospitals and

to cut down on care that is not medically necessary so as to reduce health

care cost inflation. The introduction of the DRG has resulted in the

phenomenon of “DRG creep”, i.e., hospitals try to “game the system” and

generate more revenue by classifying a patient under a higher DRG

whenever possible.

Differential pricing: The pricing of goods or services such that customers

from different social groups are charged different prices for identical goods

or services provided. This is considered discriminatory and, in the eyes of

mainstream health economists, a form of market distortion. Those who

support differential pricing argue that people who are better off can be

charged higher prices and the extra revenue generated can be used to

subsidise people who are poor. However, the evidence that this is happening

in the for-profit private sector is unconvincing.

Efficiency: Efficiency, as used in mainstream neoclassical economics can

mean either “allocative efficiency” or “technical efficiency”. Allocative

efficiency is spreading out resources to do things such that total output or

results are maximised. Technical efficiency refers to the production of

maximum output given a particular set of inputs. This would also result in

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the cost of production being minimised. Allocative efficiency is increased if

more resources are used to prevent diseases such as diphtheria through

vaccination rather than through treatment of cases that arise later.

Equity: Equity in health care refers to “fairness” along various dimensions,

i.e., in terms of access to health care services, actual utilisation of health

services, reduction in health inequalities across social groups, fairness in

spending on health care. There is also “vertical equity”, i.e., the notion that

those with worse health (such as indigenous peoples in countries such as

New Zealand, Australia, Canada and the USA) should be able to make use

of more health care resources and “horizontal equity”, i.e., equal access to

health care services for people with equal need.

Evidence-based medicine: A movement in clinical medicine to make the

practice of medicine more scientific through the proper testing of drugs and

medical procedures via randomised clinical trials (RCT) so as to ensure that

they are actually effective against disease.

Experience rating: The charging of different premiums for people from

different groups, e.g., charging higher life insurance premiums for smokers

and charging higher premiums for people involved in high risk occupations.

Critics dislike experience rating as it discriminates against people belonging

to certain categories, e.g., men or people in older age groups.

Externalities: The effects of an action taken by a person or organisation on

others, e.g., when a factory begins to operate in a particular location, the

wastes it generates may pollute the air, water and so on (negative

externality). Externalities can be positive sometimes, e.g., when a person

gets vaccinated against a particular disease, he or she will be less likely to

contract the disease and then pass it on to other people in the community.

Fee-for-service: A method of payment to health care providers such as

doctors where the providers are paid for each unit of service supplied. FFS

has been criticised for creating financial incentives for providers to supply

more services than medically necessary.

Formulary: A list of drugs (usually drugs that have been approved by a

selection committee for doctors to prescribe). If doctors wish to prescribe a

drug which is not on the formulary, they will need to apply for special

approval to do so. Often a health insurance company or another third party

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payer will not pay for a non-formulary drug. A drug formulary is one way to

keep health care costs under control, e.g., forcing doctors to prescribe

cheaper generic drugs in place of more expensive proprietary drugs.

Generic drug: A drug which is identical in its pharmacological effects

(“bioequivalent”) to a branded drug produced by Company X. Once the

patent on a branded drug expires, other companies are legally allowed to

produce copies of the drug. Generic drugs are cheaper than their branded

counterparts.

Global budget: A budget which has been fixed beforehand. It is intended to

cover total costs (usually for one year), e.g., as in the annual budget of a

typical Ministry of Health hospital in Malaysia.

Government failure: The failure of a public programme or a public law to

achieve the desired results. Right-wing and pro-market mainstream

economists usually focus on government failure as an excuse for

deregulation, privatisation, and for more competition in the health care

sector.

Health care provider-patient relationship: The interactions between a health

care provider such as a doctor and the patient make up this relationship. The

relationship can be affected by factors such as the socio-demographic

characteristics of the provider and the patient, e.g., ethnicity, educational

level (of the patient), gender, age, languages spoken and so on.

Communication between the provider and the patient can be negatively

affected because of these factors, e.g., a lowly-educated patient may

misunderstand the medical advice given by the doctor.

Iatrogenic sickness: Sickness or injury that is caused directly by health care

providers, e.g., treatment errors made by doctors (such a prescribing too

strong a drug dosage for children or the elderly) and surgeons (such as

leaving surgical material within the body of a patient after an operation).

Iatrogenesis has been identified as a significant cause of morbidity and

mortality in a report issued by the Institute of Medicine of the USA.

Illness behaviour: A term from medical sociology to describe what people

do when they perceive they are being afflicted by illness. Illness behaviour

includes the following – ignoring any signs and symptoms; self-medication;

seeking care from “traditional and complementary medicine” health care

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providers; going to see a GP; going straight to a specialist; going to the

Accident and Emergency department of the nearest hospital; or a

combination of these actions. It is claimed that appropriate illness behavior,

e.g., going to a GP first for care instead of going straight to a specialist

doctor, can help to lower total health care costs.

Incentives: An inducement (not necessarily financial) to encourage higher

rates of participation with respect to a particular activity. Incentives can

sometimes be perverse in that they unintentionally encourage undesirable

kinds of behaviour, e.g., the fee-for-service method of payment can result in

the provision of more care than medically necessary by certain providers. On

the other hand, the capitation system of provider payment may influence a

doctor to undertreat the patient, or attempt to pass on a sicker patient to other

providers or health care organisations. Hospitals may also try to discharge

patients more quickly under DRG (diagnosis-related group) systems of

hospital reimbursement. This may actually endanger the health and well-

being of the patient.

Interest groups: Groups that form in order to protect or advance their

economic interests or attempt to lobby the government for privileges, e.g.,

rent-seeking activities. National medical societies such as the American

Medical Association and the Malaysian Medical Association are examples

of interest groups. The Association of Private Hospitals Malaysia (APHM) is

another example of an interest group.

Malpractice: Any form of professional misconduct (including violations of

professional codes of conduct) can be broadly classified as “malpractice”,

e.g., financial fraud, inappropriate handling of patients (negligence,

committing preventable medical errors, engaging in sexual relations with

patients). Providers may be forced to purchase expensive malpractice

insurance to protect themselves against lawsuits from dissatisfied or upset

patients or the family members of patients. Lawsuits alleging malpractice

can result in damage to the reputation of health care providers. In some

cases, the health care provider may lose his or her license to practice, or

even end up in prison.

Managed care: This refers to ways of organising and financing health care

that attempt to influence the behaviour of health care providers on the supply

side (such as doctors) as well as health care consumers on the demand side

(such as patients and their families). Some of the goals of managed care

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include the promotion of more appropriate and rational care-seeking by

patients (such as seeing a GP for minor health problems) and technical

efficiency on the part of providers (such as prescribing generic drugs in

place of more expensive proprietary drugs).

Market failure: The failure of the market mechanism to work properly (i.e.,

fail to efficiently supply goods and services – high price, low quality,

insufficient amounts, excessive amounts) because of various reasons, e.g.,

the existence of monopoly (only one seller), oligopoly (a small number of

sellers) or price-fixing.

Medically-underserved group: A medically-underserved group is a group of

people who are unable to undergo medical treatment commensurate with the

severity of the diseases they experience because of reasons such as lack of

money or health insurance coverage, living in remote areas, discrimination,

lack of knowledge of availability of health care resources, etc. Medically-

underserved groups include

Ethnic or religious minorities

Poor people

Women (especially those who are lowly-educated)

Rural people

Slum dwellers in urban areas

People suffering from stigmatised sickness such as severe mental

illness or HIV/AIDS

Illegal immigrants

Medical savings account: An individualised account which can only be used

to pay for one’s medical expenses (or for the medical expenses of close

relatives). An alternative name is health savings account. Singapore’s

Medisave scheme to pay for hospital care is an example of a Medical

Savings Account.

Moral hazard: This refers to the chance that something will be more likely to

occur because the event has been insured against, e.g., higher utilisation of

services that are covered by a health insurance policy. Another example of

moral hazard is the alleged tendency of young people in the USA who are

covered by a health insurance scheme to engage in more risky behavior such

as participation in high risk sports.

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Neoliberalism: Neoliberalism is an ideology that favours market solutions to

social and economic problems and challenges, including the provision of

health care of reasonable cost and reasonable quality in a timely manner to

patients. Thus, supporters of neoliberalism typically are critical of regulation

and are enthusiastic about privatisation of health care services. They claim

that the promotion of “consumer choice” and competition between health

care providers would help to promote consumer sovereignty as well as

efficiency.

New Public Management: NPM is closely associated with the ideology of

neoliberalism. NPM proponents typically argue that the adoption of

managerial techniques and practices from the private sector would make

government operations more efficient. Toward this end, they favour ways to

measure job performance and output in public bureaucracies, and to

implement systems such as “pay for performance”, e.g., achievement of key

performance indicators (KPI) should be rewarded with performance bonuses

or promotions. Critics of efforts to “reform” health care systems such as the

National Health Service (NHS) of England argue that the endless rounds of

NPM-influenced “reforms” tends to add more layers of supervisory

bureaucracy and demoralise front line staff such as doctors and nurses.

Nosocomial infection: An infection acquired in a health care institution such

as a hospital or a nursing home. Systems of infection control are necessary

in hospitals to avoid nosocomial infections, e.g., providers must wash their

hands after attending to each patient, a patient who suffers from a highly

infectious or dangerous disease must be kept in isolation and so on.

Opportunity costs: Roughly, not being able to do Y or Z, because one does

X. Technically-speaking, in mainstream economics, opportunity cost refers

to the next best thing one could do and has to give up (Y), in order to do X.

Parallel import: Directly importing an identical good from another country

in order to reduce the cost of purchasing it (when purchasing the same good

from a source within the country would cost more), without the consent of

the intellectual property owner. Some multinational drug companies price

the same patented drug they produce very differently across countries. By

using the strategy of parallel import, the Ministry of Health of a particular

developing country (where the patented drug is priced high) can save money

by buying the same drug from another country (where the identical drug is

priced lower).

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Patented drug (branded drug/proprietary drug): A drug which is protected

by a patent granted by the public authorities. Also, a brand name drug

produced by the original company even after its patent has expired. Drug

companies have been accused by critics of the practice of “evergreening”,

i.e., making minor changes to a branded drug in order to get another patent

on the drug, as the original patent approaches its expiry date.

Pharmaceutical industry: All entities involved the development, marketing,

distribution, and sale of medical drugs make up the pharmaceutical industry.

Questionable or unethical actions that some drug companies have engaged in

include:

Actions that reduce the integrity of the Clinical Practice Guideline

preparation process

Questionable drug marketing techniques (e.g., paying Key Opinion

Leaders recruited from the biomedical community to promote

particular drugs; DTC or Direct-to-Consumer drug advertising; hiring

celebrities to promote drugs; promotion of “off-label” uses, i.e.,

regulatory authorities have approved a drug to treat medical condition

X, but the drug company also attempts to market the drug to treat

medical condition Y)

Questionable responses by drug companies to unfavourable findings

from post-marketing surveillance (for adverse events caused by a

particular drug they are selling)

Invention of new diseases (e.g., restless legs syndrome, social anxiety

disorder) in order to sell more pharmaceutical drugs

Using poor people from developing countries for clinical drug trials in

unethical ways, e.g., without proper “informed consent”

Premium: Regular payments that have to be made when one is enrolled in an

insurance scheme (either private health insurance or a public National

Health Insurance scheme). Premiums can be based on community-rating or

experience rating. Community rating means every enrollee pays the same

amount while experience rating means the premium payable is determined

based on the demographic or health situation of the individual, e.g., older

people have to pay more, people with chronic illness have to pay more,

people holding more risky jobs have to pay more.

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Principal-agent relationship: the relationship between the actor (such as the

patient) and his or her agent (such as the doctor). Any “information

asymmetry” (see the entry under Asymmetric Information) can give rise to

situations where an unethical health care provider can exploit (usually

financially) the patient, e.g., providing more services than medically

necessary and billing for these, or a hospital overcharging for goods and

services provided to a patient, or keeping the patient longer in the hospital

than medically necessary.

Privatisation: The Malaysian government’s definition of privatisation is the

“transfer to the private sector of activities and functions which have

traditionally rested with the public sector” including management

responsibility, assets or the right to use assets, and personnel. The concept of

privatisation is part of neoliberal ideology (see entry under “Neoliberalism”)

and includes the belief that the private sector tends to be more efficient than

the public sector because the former is subject to the forces of market

competition whereas the latter is not. Hence, to increase efficiency,

government services should be privatised as much as possible, e.g., through

contracting out or through public-private partnerships. The record of

privatisation has been mixed in Malaysia, e.g., privatisation of telephone

services has been a boon for consumers. But privatisation in the health care

sector has seen phenomena such as high drugs prices for the Ministry of

Health because MOH has been forced to buy drugs only from one company.

Critics say this is a case of “crony capitalism” whereby contracts are

awarded, without going through the process of tender, by the government to

companies linked to powerful politicians or their political allies. Signs of

privatisation failure include higher prices and/or lower quality medical

goods and services.

Professional socialisation: “Socialisation” is a social science term which

refers to the process whereby young people learn the norms, values,

appropriate behavior patterns, etc. of the society they were born into so that

they can become autonomous and fully-functioning adult members of their

society. “Professional socialisation”, thus refers to how persons (such as first

year medical students) not only learn technical skills and knowledge but also

the norms, values, behavior patterns expected of medical doctors in the

community. Professional socialisation of doctors trained in Western

medicine has been criticised for turning out doctors who are not holistic in

their thinking and who have a tendency to be overly disease-focused and

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treatment-focused (rather than prevention-focused), and who tend to neglect

the socio-economic determinants of health and sickness.

Progressive tax: A tax whereby a higher percentage of an individual’s

income is taxed, the more the individual earns. Some political conservatives

advocate a “flat tax” (i.e., everyone pays the same percentage of their

income in taxes – whether they are poor, middle income, or very rich) as

they oppose the progressive tax.

Prospective payment: Payments arranged or made in advance for goods or

services to be supplied later.

Public choice theory: a version of mainstream economics where neoclassical

economic theories and concepts (such as “individuals act to maximise their

utility”) are applied to political and social behavior. Thus, public choice

theory advocates argue that government bureaucrats tend to act in their own

self-interest rather than in the interest of the public. In the words of the

economist William Niskanen, bureaucrats try to maximise their budgets.

Public goods: Goods with special characteristics such as goods which can be

enjoyed by those who paid for it as well as by those who did not pay for it.

In economic jargon, these goods are “non-excludable” and give rise to the

“free rider” challenge. Public goods tend to be undersupplied unless the

government steps in to actively increase the supply. Examples include clean

air and public health campaigns carried out by the government.

Quality assurance: Steps taken to improve quality in the provision of health

care and to reduce cases of adverse outcome (including iatrogenic sickness

or nosocomial infection).

Rationality: Actions that are goal-oriented and which attempt to reach these

(ranked) goals with as little expenditure of resources as possible. In

mainstream economic theory, individuals attempt to “maximise utility”

while firms attempt to maximise profits or maximise market share. Issues of

social justice are ignored in so-called “positive economics”, in contrast to

“normative economics” influenced by “value judgments”.

Rationing: When the demand for a particular service exceeds its supply, it

will be necessary for rationing to be carried out. For example, when the

supply of donor kidneys is less than the demand (for kidney transplants),

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difficult choices will have to be made about who should be given the

kidneys and in what order. One way of rationing is to make people queue for

a service, e.g., in the National Health Service (NHS) of England, patients

may have to wait months for elective surgery. Left-wing economists often

argue that in fee-for-service systems, there is “rationing through ability to

pay”, i.e., wealthy people get served first because they have superior

financial resources as compared to poorer people.

Regressive tax: A tax is regressive if a person whose income is lower is

taxed more while a person whose income is higher is taxed less (in terms of

percentage of total income), i.e., the percentage of income spent on the tax

falls with rising income levels.

Regulation: Laws, directives, regulatory guidelines etc. passed or issued by

governmental authorities to shape or influence the behaviour of individuals

and organisations. For example, laws that regulate who may practice

medicine in the community, laws to control drug prices, laws that declare

recreational use of particular substances to be illegal, etc.

Regulatory capture: A government regulatory body is said to be captured (by

a special interest group) when it acts to promote the interests of those it is

supposed to be regulating rather than the interest of the public. In certain

countries, regulatory officials are allowed to work in companies they

regulate, i.e., after their retirement from government service. The worry is

that this may influence the regulatory officials to be lenient now in return for

getting a job in the regulated industry later on.

Rent-seeking behaviour: Actions taken by an individual, organisation or

interest group to try to get the government to pass laws or implement

policies which directly benefit the former (at the economic expense of the

public). Thus, some companies may attempt to reduce market competition

by lobbying the government to pass laws that shield them from competition

from imported (foreign) products.

Resource-Based Relative Value Scale (RBRVS): A system of paying

individual health providers (such as doctors) for services provided based on

a list of point scores for each specific service.

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Risk: The chance or probability that an adverse event will occur.

Participation in a health insurance scheme helps to reduce the risk of heavy

financial losses arising from big medical bills.

Risk pooling: The sharing of risk by many individuals or organisations so as

to reduce the risk to an individual or a single organisation. The bigger the

risk pool, the lower the risk to the individual. Also, the more fiscally sound

the risk pool (such as premium money being paid into the risk pool greatly

exceeding the payout for medical costs generated by enrollees, or risk pools

that have large numbers of young and healthy enrollees, and small numbers

of elderly and chronically ill enrollees), the lower the risk of financial

insolvency for the entire risk pool.

Risk selection: This refers to attempts by a private health insurance company

to reduce financial risks by trying to enroll only those with low health risks

and to exclude those with high health risks. If there are too many elderly and

sick people in a health insurance scheme, this may result in financial

insolvency for the scheme.

Salary: A means of paying health care providers whereby they are paid a

fixed amount of money per unit of time served (e.g., payment in the form of

a monthly salary). The typical salary can be combined with a “performance

bonus” in order to motivate employees to work harder.

Social class gradient in health: This refers to the empirical observation that

the health of lower class people (as measured by income or occupation)

tends to be lower than that of upper class people. Lower class people tend to

have higher rates of morbidity (sickness), higher rates of disability, and

lower life expectancy at birth.

Social control: Social mechanisms that influence, guide or even explicitly

control the behavior of individuals. These can be internalised (norms, values,

religious beliefs etc.) or external (laws, the court system, the police, the

army etc.). Some examples of social control that make use of health care

providers include the Medical Certificate (MC) in Malaysia whereby doctors

play a role in regulating worker behavior, and getting a psychiatrist to

determine whether a person who has committed a major crime such as a

murder is mentally competent to be put on trial. The most notorious example

of social control using doctors is the placing of political dissidents in mental

hospitals during the days of the former Soviet Union.

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Social insurance: An insurance programme run by the government for the

benefit of certain members of the public, or for the entire public. It can be

funded by any combination of general tax revenue, earmarked taxes,

individual payments, deductions from individual payroll or by fixed

employer contributions. Examples of social insurance schemes include the

National Health Insurance schemes of Taiwan and South Korea.

Social marketing: Marketing techniques from the private sector are used to

promote awareness of ways to improve one’s health, or to promote public

health services and programmes. An example would be the application of

marketing techniques in campaigns to wear bicycle helmets, use car seats for

young children, practice safe sex, and so on.

Supplier-induced demand: Demand for goods or services which are actually

generated by those who supply the goods or services, e.g., a health care

provider who provides more health care services than medically necessary to

a patient (for the benefit – usually economic – of the former). Another

example of supplier-induced demand is a doctor who asks a patient to come

back for a follow up visit although there is no necessity for the patient to do

so.

Technology assessment: The evaluation of new medical technology to

determine if it is actually effective and also, to determine if the benefits of

using such medical technology exceed the costs. Technology assessment is

necessary to control health care costs since expensive new technology has

been identified as a major driver in the problem of rising health care costs.

Third party payment: Third party payment occurs when an outside party

such as a private health insurance company or a government agency pays the

doctor for services provided to a patient (and the patient does not pay the

doctor for the services provided in full). The doctor and the patient (or the

patient and the hospital) are the first and second parties while the health

insurance company or the government agency paying the bill is the third

party.

Underinsured: The “underinsured” refer to people who are covered by

private or public health insurance but the coverage actually provides

inadequate protection against heavy financial loss. Some people who are

underinsured may not even be aware of their true situation. Interestingly,

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even some doctors in the USA may be underinsured – even though they are

an important group of health care providers.

Uninsured: People who are not protected at all against heavy financial loss

arising from high medical bills (such as from a serious illness, a prolonged

stay in a hospital, or an expensive medical procedure) by a private health

insurance plan or by the government through a National Health Insurance

scheme, or through highly-subsidised health care provided by the public

sector.

User Fees: Fixed fees that need to be paid when a person uses a particular

health care service. The fee paid may be low if the government provides a

subsidy for the service provided. For example, in Malaysia, a patient only

needs to pay RM1 when seeking care at a government primary care clinic.

Utilisation: Actual usage of health care services which are available in the

larger community. A commonly-used measure of utilisation with respect to a

particular hospital would be its bed occupancy rate. One way of increasing

equity in health care is the enhancement of “vertical equity”, i.e., the idea

that those who need more health care services (because of poor health)

should actually make use of more services. One form of right-wing

argument against vertical equity is that people who have poor health because

of “personal irresponsibility” (as shown by an unhealthy lifestyle such as

smoking, heavy drinking of alcohol, drug abuse, failure to wear a

motorcycle helmet, bad nutrition etc.) should not be subsidised by the rest of

the public when it comes to health care costs.

Work, unemployment and health: The work a person does can affect his or

her health, e.g., some jobs are physically-demanding and may, over the long

term, have a negative effect on the person’s physical health. The 3D jobs

(jobs that are dirty, dangerous, or degrading) are typical. 3D jobs include

construction, agriculture and mining. Jobs that put a lot of psychological

pressure on workers can also affect their mental health. Unemployment

(especially long term, involuntary unemployment) can also affect a person’s

health in a negative manner through pressure on finances, loss of self-

esteem, decrease in respect from others (including family members). At the

level of the individual, unemployment is associated with higher risk of

suicide, substance abuse, and domestic violence. At the level of the society,

economic downturns and higher rates of unemployment are associated with

higher levels of poor mental health. On the other hand, during economic

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downturns, occupational injuries and road traffic injuries may actual

decrease – simply because fewer people are working in factories and

unemployed people may drive less in order to reduce expenses.

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Appendix 1: Cost-Containment Measures

(Adapted from: Phua KL, Phua KH. 2009. Health Economics. Penang: USM

Press)

Short Term Direct Controls

Budget ceilings

Staff numbers

Levels of remuneration

Price controls

Limits on quantities (supplies, prescriptions, etc)

Short Term Indirect Controls

Relative value scales (payments to individual health care providers)

Positive lists or negative lists (e.g., medical products)

Restrictions on sales promotion/advertising of health care services

Information to providers – costs and prices

Supplier/provider profiles, e.g., identifying high users/claims

Medium Term Direct Controls

Construction and extension of expensive facilities such as hospitals

Installation/purchase of expensive equipment

Substitutes to hospital care, e.g., care in the community rather than in the

hospital

Medium Term Indirect Controls

Global budgets

Prospective payment, e.g., Diagnosis-related groups (DRG)

Prepaid capitation, e.g., Health Maintenance Organisation (HMO)

Long Term Direct Controls

Human resources planning – control entry into health professions

Specialist training – restricting the number of specialists

Long Tem Indirect Controls

Disease prevention

Health promotion

Public education

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Cost-Sharing

Inpatient charges

Consultation charges

Pharmaceuticals

Others – incidentals (appliances, aids), transport, etc.

Co-insurance, deductibles, no-claim bonuses, etc.